Estate Planning for Kids
Welcome back to The Friday Brief. Today we’re tackling a topic that’s about as pleasant as a root canal: estate planning for/with small children. Yes, I know, Friday was probably a bad choice for sharing these topics—but they’re essential nonetheless.
The Unthinkable: Why You Need a Plan
No one wants to imagine a scenario where you’re not around for your kids. But accidents happen. If you don’t have a plan in place, the decision of who cares for your kids—and how— defaults to the courts. Feel comforted?
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Naming a Guardian
(Hint: Pick someone who can tolerate crayons on the walls.)
The single most important element of your estate plan for the little ones is to name a guardian. If you fail to do this in your Will, you’re basically handing the decision over to the courts. For those lucky enough to have a strong family support system, this may not prove to be the existential crisis it is for others. But for those who don’t, be intentional. Ideally, you want someone who:
Shares your values.
Has the emotional bandwidth to raise your kids.
Will actually agree to do it (ask them, please—surprise guardianship is the worst type of inheritance).
Trusts: Not Just for the 1%
Next on the docket: establishing a trust. Trusts aren’t exclusively for the wealthy. A contingent testamentary trust can be an added layer of financial protection for any young parent if things go sideways. Leaving your assets to a trust ensures your children’s inheritance is managed by a responsible party (also known as a trustee) until they’re ready to handle finances themselves. Mayber that’s when they turn 21, or maybe you’re more comfortable with the age being bumped up to 30. It’s up to you.
Because, let’s face it, an 18-year-old with full access to your life savings is not the best idea. The trust arrangement helps guard against unwise spending, potential unscrupulous “friends,” and your kids’ innate desire to buy that new Tesla.
Life Insurance: The Unsung Hero
Life insurance is one of those adulting milestones on par with owning a leaf blower or a decent set of steak knives. If you’re planning for the worst, you want to ensure there’s enough money to cover everyday expenses—food, education, health, and an occasional splurge.
Term life insurance is often more affordable for young parents. The idea here is to protect your family during the years they’re most vulnerable—when children are small, or your finances are tied up in a mortgage.
A good rule of thumb is 10 times your household income. Dave Ramsey recommends 10–12 times your annual income.
While the amount is important, you also need properly set your beneficiaries. Your spouse is typically your primary beneficiary with your estate or the contingent testamentary trust being the alternative beneficiary. This way, if something happens to both of you, the money flows through your estate and pays your remaining debts with the balance flowing into the trust.
Final Thoughts: Communicate and Update Regularly
If you’ve actually made it this far, you’re 90% more responsible than the average person. (Scientific fact, obviously.) But don’t forget: your plan needs updates. New jobs, new kids, or even new (questionable) in-laws might require revisiting your documents. Keep your guardians, trustees, and financial advisors in the loop.